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Bessemer 5 Cs of SaaS Finance

Presentation of the Bessemer 5Cs of SaaS Finance: CMRR, Cash, Churn, CAC ratio and CLTV. This presentation includes an overview of the current SaaS public valuations and provide some thoughts for SaaS companies going into their 2009 planning.
More on SaaS finance at http://www.cracking-the-code.blogspot.com/

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Bessemer 5 Cs of SaaS Finance

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Bessemer’s 5Cs of SaaS Finance Winter 2009

2.
Agenda <ul><li>Overview of Bessemer </li></ul><ul><li>Things have changed </li></ul><ul><li>Hard Times require better visibility: the 5Cs of SaaS Finance </li></ul><ul><li>Tips to Survive in a downturn </li></ul>

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NO, NO, I WAS QUOTED OUT OF CONTEXT. WHAT I REALLY SAID WAS “I DON’T BELIEVE IN SAAS-QUATCH!” A Prediction….

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Bessemer Venture Partners Snapshot <ul><li>Founded 1911 </li></ul><ul><li>The longest standing track record in the Venture Capital Industry with 150+ M&A and IPOs </li></ul><ul><li>Strong Global Platform with over $2 billion under management and six offices worldwide </li></ul><ul><li>One of the most successful software and SaaS investors in history </li></ul><ul><li>Close partnership with Salesforce.com for SaaS investing </li></ul>

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BVP Software and SaaS Practice <ul><li>BVP Software and SaaS Portfolio </li></ul>Software and SaaS is the largest investment area for Bessemer New SaaS/Software investments 2008 exits

6.
Agenda <ul><li>Overview of Bessemer </li></ul><ul><li>Things have changed </li></ul><ul><li>Hard Times require better visibility: the 5Cs of SaaS Finance </li></ul><ul><li>Tips to Survive in a downturn </li></ul>

13.
How long will it last? Dow Jones evolution since 1929 Linear scale 1929 Crisis: 25 years to recover Dow fell from 350pts in 1929 to 40pts in 1932 (-89%). Recovers 1929 level in 1954 1987 Crisis: 2 years to recover Dow fell from 2,600pts to 1940 pts (-25%). Recovers 1987 level in 1989 2000 Crisis: 6 years to recover Dow fell from 11,500pts to 7,600 pts (-34%). Recovers 2000 level in 2006 2008 Crisis: Plan for multi-year recovery Dow fell from 14,000pts to 8,175 pts (-41%). How bad is it really? 1973 Crisis: 9 years to recover Dow fell from 1,050pts to 580 pts (-45%) in 1974. Recovers 1973 level in 1982

14.
Brace for a tough 2009 <ul><li>SAP Tells Employees: 'Do Not Order Any New IT Equipment at This Time' </li></ul><ul><ul><li>SAP's co-CEOs, Henning Kagermann and Leo Apotheker </li></ul></ul>We believe demand for application software is deteriorating rapidly and &quot;in real time&quot;-and do not anticipate it will &quot;bounce right back“ A 14% 2009 growth rate keeps Omniture solidly as one of the highest growers among the companies in our coverage universe Goldman Sachs Global Investment Research […] the recent slump in raw-material prices and the decline in shipping costs indicate just how far-reaching the consequences of the global financial crisis will be for the real economy […] a recession is occurring, and that many companies could struggle over the next few quarters Wedbush Securities

15.
Agenda <ul><li>Overview of Bessemer </li></ul><ul><li>Things have changed </li></ul><ul><li>Hard Times require better visibility: the 5Cs of SaaS Finance </li></ul><ul><li>Tips to Survive in a downturn </li></ul>

18.
Cash – Time to get your cost and revenue line crossing Expense Plan MRR Expected breakeven point Actual Expenses Lines are still not crossing! Time to get the lines to cross – even at the expense of growth

22.
Agenda <ul><li>Overview of Bessemer </li></ul><ul><li>Things have changed </li></ul><ul><li>Hard Times require better visibility: the 5Cs of SaaS Finance </li></ul><ul><li>Tips to Survive in a downturn </li></ul>

23.
Some ideas for Year 2009 Planning (1/2) <ul><li>Cash is King…and scarce – preserve it : if you are in a funding cycle, raise as soon as possible and as much as possible. If not - plan to cash flow breakeven with what you have left. Preserving cash is your #1 priority </li></ul><ul><li>It is time to fix your key SaaS metrics </li></ul><ul><ul><li>P&L: MRR = MRE : you control your destiny when your monthly revenue equals your monthly expenses </li></ul></ul><ul><ul><li>Sales & Marketing: CAC>1 – You cannot afford to invest in growth. Keep only reps making quota and cut marketing activities with lower ROI </li></ul></ul><ul><ul><li>CLTV >0 – Adjust operations, R&D and G&A to make your business model profitable </li></ul></ul><ul><li>Be realistic on valuation : the best public SaaS companies lost 55% of their value on average, so it is likely your valuation is down too! </li></ul><ul><li>Watch for cheap MRR (M&A, Other structure to avoid buying assets?) : you will soon be able to buy failing competitors. Volatility creates opportunities </li></ul><ul><li>Act fast : don’t wait for the slowdown to hit you, it will be too late </li></ul>Strategic Manage Carefully Your Internal Communication!

24.
Some ideas for Year 2009 Planning (2/2) <ul><li>Sales& Marketing </li></ul><ul><ul><li>Focus on your farmers: account management is critical to keep your churn low and improve “up-selling”. Monitor account activities and be proactive </li></ul></ul><ul><ul><li>Trade-off pre-payments for MRR by increasing pre-payment discount and sales bonus </li></ul></ul><ul><ul><li>Review sales comp structure: more commission less salary </li></ul></ul><ul><ul><li>Keep you voice up in the market: customer need to know you are still alive! </li></ul></ul><ul><ul><li>Rethink vertical segmentation: Healthcare? Is Government a good idea? </li></ul></ul><ul><ul><li>Review your marketing media allocation: offline media prices will go down and could generate attractive ROI, tradeshows might have less impact due to travel restrictions… </li></ul></ul><ul><li>G&A </li></ul><ul><ul><li>Manage your DSOs tightly – they will go up! And check for payment that can be deferred </li></ul></ul><ul><ul><li>Wisely manage debt: finance your A/R and leverage only when needed to extend runway </li></ul></ul><ul><ul><li>Implement “quick wins”: shut down all retained searches immediately, renegotiate services contracts and leases, limit travel… </li></ul></ul><ul><li>R&D </li></ul><ul><ul><li>Review product roadmap: what new features are absolutely necessary </li></ul></ul><ul><ul><li>Move more R&D offshore </li></ul></ul><ul><li>Operations </li></ul><ul><ul><li>Follow your customer growth, don’t grow data center and support capacity ahead </li></ul></ul>Tactical